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Hattrup v. Deng

United States District Court, D. Kansas

January 3, 2020



          Daniel D. Crabtree, United States District Judge.

         Plaintiff Scott Gregory Hattrup[1] filed suit against the United States, Julia Deng, and John Doe to secure quiet title relief and an injunction to extend the redemption period arising from the judicial sale of his former property. Doc. 1 at 1. Only the claims against defendant Deng remain. The claims against the United States and John Doe have been dismissed.[2]

         Plaintiff contends he was denied due process because he did not receive post-sale notice from the Internal Revenue Service ("IRS") after the sale of his property. He now seeks injunctive relief and quiet title relief against defendant with respect to the quit claim deed issued by the IRS to defendant. And, he asserts a right to redeem his former property.

         This matter comes before the court on three motions. Defendant has filed a Motion for Summary Judgment (Doc. 31). Plaintiff also has filed a Motion for Summary Judgment (Doc. 34). And, defendant has filed a Motion to Supplement (Doc. 37).

         Defendant seeks summary judgment against each of plaintiff s claims. Docs. 31 & 32. Plaintiff has filed a Response (Doc. 36), and defendant has submitted a Reply (Doc. 38). Plaintiff seeks summary judgment on his injunctive and quiet title claims as well. Doc. 34. Defendant has filed a Memorandum in Opposition (Doc. 35). And, the time for plaintiff to file a reply has expired. Also, plaintiff has not filed any response to defendant's Motion to Supplement and the time to do so has expired. The matters thus are fully briefed, and, after considering the parties' arguments, the court now is prepared to rule.

         For reasons explained below, the court grants defendant's Motion for Summary Judgment (Doc. 31) and Motion to Supplement (Doc. 37). The court denies plaintiffs Motion for Summary Judgment (Doc. 34).

         I. Undisputed Facts

         The following facts are either stipulated by the parties in the Pretrial Order (Doc. 30) or are uncontroverted for purposes of the parties' summary judgment motions.[3]

         The Property at Issue and the IRS Sale

         Before and throughout 2016, plaintiff was the owner of, and resided in, the residence located at 11925 West 92nd Terrace, Lenexa, Johnson County, Kansas 66215 (the "Residence"). The IRS filed a tax lien and notices of the lien against the Residence at various dates from 2005 to 2012.

         The IRS sought and received approval for a judicial levy on the Residence in a related suit before our court, In the Matter of Tax Indebtedness of Scott G. Hattrup, Case No. 15-mc-219-CM (D. Kan. 2015). The judicial levy was approved on February 10, 2016. The IRS provided plaintiff with a Notice of Seizure of the Residence on or about April 27, 2016, on Form 2433, as required by 26 U.S.C. § 6335(a). The IRS provided plaintiff with a Notice of Public Auction Sale on or about August 24, 2016, on Form 2434 ("Form 2434"), [4] as required by 26 U.S.C. § 6335(b), which listed October 6, 2016, as the intended sale date.

         Page 1 of Form 2434, delivered to plaintiff, identified the date, time, and place the sale was to occur. It also identified the name and contact information for the Property Appraisal & Liquidation Specialist ("PALS"). It identified Jennifer L. Breuchaud as the PALS and provided her email address. Page 1 also gave an "Address for information about the sale" as 380 Office Ct, Fairview Heights, Illinois 62208 and provided a phone number.

         Page 2 of Form 2434 stated the redemption rights before sale, per Section 6337(a) of the Internal Revenue Code. Page 2 also stated the redemption rights after the sale, per Section 6337(b) of the Internal Revenue Code, including a notice that the right of redemption runs for 180 days after the sale, and that the price of redemption is the amount paid at the sale plus interest on that price at 20% per annum.

         The sale took place on October 6, 2016. Ms. Breuchaud-the PALS identified on Form 2434-conducted the sale. Plaintiff did not attend the sale. Defendant attended the sale and was the high bidder. Defendant bid $40, 000 at the sale, and, as the high bidder, paid the IRS $40, 000 that same day.

         Other Encumbrances on the Residence

         The IRS sale "was conducted 'subject to any prior valid outstanding mortgages, encumbrances, other liens in favor of third parties against the taxpayer that are superior to the lien of the United States."'' Doc. 36 at 2 (quoting Form 2434, Doc. 32-1 at 2 (emphasis in original)). The Residence was offered for sale '"where is' and 'as is' and without recourse against the United States." Id. (quoting Form 2434, Doc. 32-1 at 2).

         The sale of the Residence was subject to senior encumbrances held by the Johnson County Treasurer and by the Kansas Department of Revenue, both agencies of the State of Kansas. The Johnson County Treasurer and the Kansas Department of Revenue were not parties to the judicial levy action in federal court, nor were they identified as parties receiving notice of the judicial levy action.

         Johnson County had scheduled a sale of the Residence for November 2016 for payment of the delinquent property taxes. The buyer at the October 2016 IRS sale was responsible for paying delinquent property tax before the Johnson County sale. Form 2434 referred to "Approx $60, 138.49 in senior encumbrances that will be paid by the buyer." Doc. 32-1 at 1. It also referenced the planned November 2016 Johnson County sale, explaining "the[] buyer at the 10/6/16 auction will be responsible for payment of delinquent property tax to the County before the County Sale." Id. As explained below, this Johnson County sale did not take place and defendant did not pay the delinquent property taxes before November 2016.[5]

         Post-Sale Activity During the Redemption Period

         Following the sale, the IRS issued defendant a Certificate of Sale of Seized Property.[6]Ms. Breuchaud handed this certificate to defendant the day of the sale. Ms. Breuchaud signed the certificate in her capacity as an IRS employee. The IRS also gave defendant a letter dated October 6, 2016, notifying defendant that plaintiff had 180 days after the sale to redeem, that the redemption period ended April 4, 2017, and-if the property was not redeemed-that the IRS would issue defendant a quit claim deed in exchange for the surrender of the Certificate of Sale of Seized Property and a statement from her that the property had not been redeemed.[7] Ms. Breuchaud also handed this letter to defendant the day of the sale. This letter was signed by Ms. Breuchaud in her capacity as PALS.

         Sometime between the October 6, 2016 IRS sale and the Johnson County sale scheduled to take place in November 2016, defendant contacted the Johnson County Treasurer's Office to have the sale cancelled. Later, as explained below, defendant paid the delinquent property taxes owed to Johnson County.

         The only correspondence, documents, or emails that plaintiff received from the IRS at any time between the date of sale on October 6, 2016, and expiration of the 180-day redemption period in April 2016, was an untitled demand for interest, which plaintiff received approximately January 17, 2017, or shortly thereafter. This demand did not mention that the sale had occurred or that the redemption period had commenced. Plaintiff did not send any correspondence, documents, or emails to the IRS (other than any personal tax return or estimated tax filing) at any time during the redemption period. Plaintiff did not communicate orally (whether in person or over the phone) with any employee or representative of the IRS at any time during the redemption period about the Residence or the IRS auction of the Residence.

         Between the date of sale and expiration of the 180-day redemption period, the IRS did not notify plaintiff the sale had occurred or that the redemption period had commenced. Between the date of sale and expiration of the 180-day redemption period, plaintiff did not learn the sale had occurred or that the redemption period had commenced.

         Post-Sale Activity After the Redemption Period

         After the 180-day redemption period had expired, defendant surrendered the Certificate of Sale of Seized Property to the IRS. In exchange, the IRS issued her a quit claim deed to the Residence.[8] Defendant recorded the quit claim deed with the Johnson County, Kansas, Records & Tax Administration on May 15, 2017. After recording the quit claim deed, defendant went to the Johnson County, Kansas, Treasurer's office on May 17, 2017, and paid $16, 682.40 for delinquent and then-current Kansas real property taxes owed on the Residence for years 2011, 2012, 2013, 2014, 2015, and 2016. Since then, defendant has paid the real property taxes on the Residence for 2017 and 2018, making a collective total of tax payments by defendant for years 2011 through 2018 of $21, 722.75. Defendant has not yet paid any amounts for the lien filed by the Kansas Department of Revenue. That lien remains on the title to the property.

         Defendant contacted counsel, who issued plaintiff a notice-to-quit the premises on May 17, 2017. Defendant hand-delivered her counsel's notice-to-quit letter to plaintiff on May 17, 2017.[9] The May 17, 2017, letter was the first time plaintiff knew that the sale was completed on October 6, 2016.

         Plaintiff did not quit the Residence as requested in the letter. So, defendant initiated an eviction action in the District Court of Johnson County, Kansas, titled Deng v. Hattrup, Case No. 17LA3672. That court entered its judgment for possession in favor of defendant on July 26, 2017. Plaintiff appealed the decision to the Kansas Court of Appeals, Case No. 118164. The Kansas Court of Appeals affirmed the Johnson County, Kansas, District Court, in an unpublished opinion dated June 15, 2018. Plaintiff filed a Petition for Review with the Kansas Supreme Court on September 11, 2018. The Kansas Supreme Court denied the Petition for Review on April 29, 2019.[10]

         The IRS sent plaintiff a Form 3074 letter dated July 25, 2017, enclosing (a) a Form 2436, Seized Property Sale Report, showing how sale proceeds were applied to unpaid taxes, (b) a Record 21, Record of Seizure and Sale, and (c) a Form 2434-B, Notice of Encumbrances Against or Interest in Property Offered for Sale. The letter indicates the documents enclosed "provide a complete record of the seizure and sale as required by Section 6340 of the Internal Revenue Code.[11] Doc. 35-7 at 1.

         The Pretrial Order

         Plaintiff asserts he was denied due process under the Fifth Amendment to the United States Constitution when the IRS failed to give him post-sale notice that the sale was complete and his redemption period had commenced. Plaintiff concedes he received notice of the sale before the sale took place, but he asserts this notice was insufficient because it did not include enough information to allow him to redeem the property after the sale, if the property indeed was sold at the scheduled sale. Plaintiff believes he has a due process right which "[a]t a legal minimum... includes receiving the name and last known address of the purchaser, and the amount of the sale, within a reasonable time after the sale is concluded." Doc. 30 at 13. Because he did not receive this notice, plaintiff contends he was denied his right to redeem the Residence under 26 U.S.C. §6337.

         The parties agree 26 U.S.C. § 6337 and federal regulations, procedure, and case law govern plaintiffs redemption rights. Doc. 30 at 2. Plaintiff also argues Kan. Stat. Ann. § 60-2414-which provides for a 12-month redemption period-and Kansas case law provide him additional redemption rights. Id. But, defendant disagrees and argues Kan. Stat. Ann. § 60-2414 does not apply here. Id.

         Plaintiff seeks injunctive relief under Kan. Stat. Ann. §§ 60-901n and 60-906[12] for the quit claim deed issued by the IRS to defendant. He would like the quit claim deed declared void or voidable and an opportunity to redeem the Residence. Alternatively, he would like the IRS sale results declared void or voidable. He also seeks quiet title relief under Kan. Stat. Ann. § 60-1002.[13] Plaintiffs requested relief hinges on a finding that his due process rights were violated or, alternatively, a finding that he is entitled to the 12-month redemption period established by Kansas law.

         II. Summary Judgment Standard

         Summary judgment is appropriate if the moving party demonstrates that there is "no genuine dispute as to any material fact" and that it is "entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(a); see also In re Aluminum Phosphide Antitrust Litig., 905 F.Supp. 1457, 1460 (D. Kan. 1995). When it applies this standard, the court "view[s] the evidence and make[s] inferences in the light most favorable to the non-movant." Nahno-Lopez v. Houser, 625 F.3d 1279, 1283 (10th Cir. 2010) (citing Oldenkamp v. United Am. Ins. Co., 619 F.3d 1243, 1245-16 (10th Cir. 2010)).

         "An issue of fact is 'genuine' 'if the evidence is such that a reasonable jury could return a verdict for the non-moving party' on the issue." Id. (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)); see also In re Urethane Antitrust Litig., 913 F.Supp.2d 1145, 1150 (D. Kan. 2012) (explaining that "[a]n issue of fact is 'genuine' if 'the evidence allows a reasonable jury to resolve the issue either way.'" (quoting Haynes v. Level 3 Commc 'ns, LLC, 456 F.3d 1215, 1219 (10th Cir. 2006)). "An issue of fact is 'material' 'if under the substantive law it is essential to the proper disposition of the claim' or defense." Nahno-Lopez, 625 F.3d at 1283 (quoting Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998) (citing Anderson, 477 U.S. at 248)).

         The moving party bears '"both the initial burden of production on a motion for summary judgment and the burden of establishing that summary judgment is appropriate as a matter of law.'" Kannady v. City of Kiowa, 590 F.3d 1161, 1169 (10th Cir. 2010) (quoting Trainor v. Apollo Metal Specialties, Inc., 318 F.3d 976, 979 (10th Cir. 2002)). To meet this burden, the moving party '"need not negate the non-movant's claim, but need only point to an absence of evidence to support the non-movant's claim.'" Id. (quoting Sigmon v. CommunityCare HMO, Inc., 234 F.3d 1121, 1125 (10th Cir. 2000)); see also In re Urethane Antitrust Litig., 913 F.Supp.2d at 1150 (explaining that "a movant that does not bear the ultimate burden of persuasion at trial need not negate the other party's claim; rather, the movant need simply point out to the court a lack of evidence for the other party on an essential element of that party's claim." (citation omitted)).

         If the moving party satisfies its initial burden, the non-moving party '"may not rest on its pleadings, but must bring forward specific facts showing a genuine issue for trial as to those dispositive matters for which it carries the burden of proof" Id. (quoting Jenkins v. Wood, 81 F.3d 988, 990 (10th Cir. 1996)); see also Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986); Anderson, 477 U.S. at 248-49. "To accomplish this, the facts must be identified by reference to affidavits, deposition transcripts, or specific exhibits incorporated therein." Adler, \AA F.3d at 671 (citing Thomas v. Wichita Coca-Cola Bottling Co., 968 F.2d 1022, 1024 (10th Cir.), cert, denied, 506 U.S. 1013 (1992)).

         The court applies this same standard to cross-motions for summary judgment. Each party bears the burden of establishing that no genuine issue of material fact exists and that it is entitled, as a matter of law, to the judgment sought by its motion. Atl. Richfield Co. v. Farm Credit Bank of Wichita, 226 F.3d 1138, 1148 (10th Cir. 2000). Cross-motions for summary judgment "are to be treated separately; the denial of one does not require the grant of another." Buell Cabinet Co. v. Sudduth, 608 F.2d 431, 433 (10th Cir. 1979). But where the cross-motions overlap, the court may address the legal arguments together. Berges v. Standard Ins. Co., 704 F.Supp.2d 1149, 1155 (D. Kan. 2010) (citation omitted).

         Finally, summary judgment is not a "disfavored procedural shortcut." Celotex, 477 U.S. at 327. Instead, it is an important procedure "designed 'to secure the just, speedy and inexpensive determination of every action.'" Id. (quoting Fed.R.Civ.P. 1).

         III. Analysis

         The facts here are not disputed, but both parties contend they are right on the law and thus should prevail. The parties' legal arguments and analysis in their cross motions for summary judgment significantly overlap. Indeed, plaintiffs response to defendant's motion directs the court to his own summary judgment motion. See Doc. 36 at 2. The court thus addresses the legal arguments together.

         Defendant seeks summary judgment against all of plaintiff s claims. She relies on four arguments. First, defendant argues plaintiff is not entitled to any of the injunctive or quiet title relief sought because there was no due process violation. Plaintiff also moves for summary judgment in his favor based on this due process issue, asserting he is entitled to prevail on his claims because he was denied due process and deprived of his opportunity to redeem the Residence. Second, defendant argues the redemption period under 26 U.S.C. § 6337 cannot be extended, even for equitable considerations, so plaintiffs injunctive relief requesting an extension of time to redeem must be denied. Third, defendant argues Kan. Stat. Ann. § 60- 2414(a) and its 12-month redemption period do not apply here. Finally, defendant argues the equitable relief-injunction and quiet title-sought by plaintiff should be denied because plaintiff "slumbered on [his] rights" and equitable relief is not available to those "who deliberately forego the opportunity to discover material facts." Doc. 30 at 15-16; see also Doc. 32 at 11. The court addresses each argument, in turn, below.

         A. Was plaintiff denied due process?

         At the root of plaintiff s claims is the alleged due process violation. Defendant argues she deserves summary judgment against plaintiffs claims because plaintiff was not denied due process. Defendant contends the IRS conducted the sale in accordance with 26 U.S.C. §§ 6331 through 6344, 26 C.F.R. §§ 301.6331 through 301.6343, and the IRS Manual concerning sales. Defendant points out that none of these provisions require post-sale notice notifying the property owner the redemption period has commenced. Defendant further argues plaintiff has no constitutional right to post-sale notice because the procedures followed by the IRS-particularly Form 2434-provided plaintiff adequate notice of his redemption rights. Doc. 32 at 13. Defendant contends Form 2434 gave plaintiff "meaningful notice[] and opportunity to act" because it gave notice of the date, time, and place of the sale and advised that a 180-day redemption period would apply if the property was sold. Doc. 30 at 12. Plus, defendant points out, Form 2434 provided contact information for the IRS if plaintiff had questions about the sale or redemption process. Id. But, plaintiff did not attend the sale or use that contact information to determine if the sale had occurred. Id. Thus, defendant argues, plaintiffs due process rights were not violated. Id.

         Plaintiff does not dispute that the IRS followed the procedures set out in the Internal Revenue Code, Code of Federal Regulations, and IRS Manual. And, plaintiff does not contest that he received Form 2434 prior to the sale. But, plaintiff disagrees with defendant's contention that Form 2434 provided him adequate notice. Plaintiff argues that due process requires notice both before and after the sale. Doc. 34 at 10. He contends the Due Process Clause of the Fifth Amendment requires the IRS to provide the property owner "notice of the results of the sale, and the information which would allow Plaintiff to redeem the property, namely the name, address, and winning bid amount from the buyer." Doc. 36 at 2. The applicable statute allows for redemption after a sale "upon payment to the purchaser, or in case he cannot be found in the county in which the property to be redeemed is situated, then to the Secretary, ... [of] the amount paid by such purchaser and interest thereon at the rate of 20 percent per annum." 26 U.S.C. § ...

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